Unlocking Working Capital for Medical Practice Growth
Dr. Sharma's practice generates $350,000 in annual revenue, but she struggles to accurately assess the efficiency of her cash conversion cycle. High student loan payments of approximately $3,000/month, combined with slow payments from insurance companies, create a strain on her practice's finances, hindering potential investments in new equipment and staff training.
By using the DSO, DIO, DPO Calculator, Dr. Sharma can pinpoint areas for improvement in managing receivables, inventory (medical supplies), and payables. The calculator reveals a DSO of 55 days, a DIO of 30 days, and a DPO of 40 days. Implementing strategies to reduce DSO to 40 days and extend DPO to 50 days will free up significant working capital.
The DSO, DIO, DPO calculator was used in conjunction with the quick ratio calculator to determine short-term liquidity and ensure the practice could meet its immediate obligations. We then calculated the Times Interest Earned Ratio to see the practice's capacity to pay off its interest related expenses.
$15,000 in freed-up working capital annually, allowing Dr. Sharma to invest in practice improvements and accelerate student loan repayment.
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